Tag Archives: secure retirement

Back By Popular Demand: What’s the Best Payment Option?

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LAGERS offers several retirement payment options for you at retirement. And, believe it or not, there is not one option that is better than the other. In fact, the payment options themselves are designed to ultimately pay the same total amount to you or your beneficiary once both of you have passed away. That fact does not really help you make the decision as to which payment options you will choose. Because, while there is no better option than the other, there is an option that may better fit your needs in retirement. Here are some things you should be thinking about when determining which payment option you will choose.

Does my spouse have a pension of their own? Sometimes, both spouses have a pension. When considering your payment option, consider what retirement income your spouse will be receiving from his or her own pension. Depending on the circumstances, this may lessen the need for you to provide a monthly benefit for your spouse. Option A and Option B are joint survivor options that offer varying amounts payable to a spouse. For example, my wife is a public school teacher and if she works her entire career as a public school teacher will have a significant pension benefit when she retires. This may dictate the payment option I choose in retirement knowing that she will have her own pension income.

Do I want to provide for my children? Currently, there are a few options that allow for a non-spouse to receive a monthly benefit Under Option A and Option B, the beneficiary must be a spouse of two or more years or a person who is 40 or older and has received more than half support from you for two or more years. Also, Option C allows you to list someone other than a spouse as a beneficiary. Another way to provide for your children is through the Partial Lump Sum (PLUS). If you choose, the funds from the Partial Lump Sum can be directly transferred to a qualified retirement account (IRA, 457, 401, etc.). Once the funds are transferred, you can set your beneficiaries of the qualified account to also include your children. This is a way for you to leave a legacy to your children and / or grandchildren.

I don’t have a spouse or any children, what options do I have? As a single person, you have two options available to you. You may choose the Life Allowance which pays you the highest monthly amount and when you pass away nothing else is payable unless you have employee contributions remaining. If so, the employee contributions will be refunded to your beneficiary of record or your estate. The other option is Option C. It is the only option that pays a monthly benefit and allows you to list whomever you choose to be the beneficiary.  This would include a trust or charitable organizations.   And remember, you may be able to choose Option A or B if you are financially supporting another person that is at least age 40.

What if my spouse significantly younger than me? If you are choosing a spousal option, there are additional adjustments to the member’s benefit based on the age difference between you and  your spouse. Option A and Option B both have additional reductions to compensate for the spouse being younger. However, your younger spouse will still receive a benefit for their lifetime upon your death. So, you might think that the additional reduction is well worth a lifetime spousal benefit.

Can I take a piece of the partial lump sum to pay off my mortgage? One quick way to receive a sum of money to pay off unpaid debt is the Partial Lump Sum. However, you can’t receive just a portion of the lump sum. Also, if you receive the lump sum and deposit it into a checking account, it is fully taxable. So, if you need only a portion of the lump sum, you could choose  a direct rollover of the funds into a qualified retirement account. Once the lump sum has been transferred, you may withdraw only what you need from the account to pay off your mortgage. That way you are only taxed on the funds you withdraw and not the entire lump sum. Keep in mind, that when you withdraw from your qualified retirement account, the funds have the taxation characteristics of that account and your withdrawl will be subject to those characteristics. So, before doing anything like this, you should seek advice from a professional accountant or CPA.

As you can see, there are several different scenarios that could play out and several more that were not illustrated here. Bottom line: there is not one option that is the best. However, there may be an option that fits your needs better than the others. So, do your research, attend a seminar and make an educated decision.

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Jeff Pabst, CRC Senior Communications Specialist

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Single? You Have Options at Retirement!

Diner, Senior, CoffeeWhen presenting at a Pre-Retirement Seminar, many of the attendees ask me questions about what their spouse will receive from LAGERS once they pass away. There are a couple of options that married members may choose at the time of retirement that will pay to their spouse upon their death. Read this blog for more information about spousal options.  On the other hand, I do get some questions from single members wondering if they have any options. Don’t worry; even if you’re single, you have some options with your retirement benefit.

The options a single individual has to choose from at retirement are the Life Allowance and Option C. Also, the Partial Lump Sum can be added to each of those options. So, which one do you choose? When determining which payment option to choose at retirement, you may want to consider a few items:

  • What are your fixed expenses in retirement?
  • Do you plan to travel or pursue a hobby that will have an impact on your expenses?
  • Will you have additional sources of income?
  • Are you planning to leave a legacy in the form of inheritance?

All things to consider when choosing your payment option.

Now, let’s explain your options as a single person.

Life Allowance. The Life Allowance is the largest monthly benefit you can receive in retirement. But, when you pass away, there is no monthly benefit payable to a beneficiary. The only instance where there is something payable under the Life Allowance is when you have a balance remaining. This balance can be from the 4% contributions made at any point in your career from which you did not receive a refund or funds used to purchase service (if applicable).

For example, if you have $20,000 in employee contributions, the first $20,000 you receive in your retirement benefit is your employee contributions. Since LAGERS pays out your employee contributions through your retirement benefit, if you pass away before the total of $20,000 has been paid out, your beneficiary will receive a lump sum of the remaining contributions.

Option C. This option is called the 10 Year Payment Certain plan on your benefit estimate. This  can be somewhat misleading because it makes it sound like you will only receive payments for 10 years. There is no option that you could choose under LAGERS that does not pay you for the rest of your life. Option C guarantees at least 120 payments are made to you or your beneficiary in retirement. Specifically, if you pass away within 120 months after retirement, your beneficiary will receive the remaining payments until a total of 120 payments have been made.

For example, if you elect Option C when you retire and pass away 96 months in to retirement, your beneficiary will receive the remaining 24 monthly payments. But, if you live more than 120 months after retirement and pass away, your beneficiary will receive nothing under Option C.

Partial Lump Sum Feature. This feature can be added to the two previous options listed above. It pays you a lump sum 90 days after retirement that is equal to 24 months of your Life Allowance benefit. This option can be a great way to get a large amount of money early in retirement that you could use for many different purposes like paying off your mortgage, leaving a legacy for your children and grandchildren, or many other purposes. Also, you can roll your Partial Lump Sum into a qualified retirement account to delay the up-front taxation, potentially grow the funds throughout retirement, and set the beneficiaries of that account to whomever you choose. Read more about the Partial Lump Sum in this blog post.

So, as you can see, even if you are single, you have some options as to what to do with your LAGERS benefit at retirement. To get an in-depth explanation of your options, attend a LAGERS Pre-Retirement Seminar or call the LAGERS office.

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Jeff Pabst, CRC Senior Communications Specialist

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Decoding your Member Annual Statement

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Very soon, you will be receiving your Member Annual Statement. While this piece of paper may not seem like much, it is a beneficial tool in your retirement planning arsenal. As you may know, your LAGERS retirement benefit will provide you with a secure stream of income when you retire. Coupled with your own personal savings, Social Security, and other sources of income, your LAGERS benefit will help you achieve financial independence when you decide to retire in the future. So, one of the first things that your annual statement may help you do is plan your retirement saving efforts by you knowing how much to expect from your LAGERS benefit.

Your annual statement gives you a wide range of information to interpret. So, I thought I would discuss some of the terminology on your annual statement

  • Personal Information will include your hire date, your date of birth, your vested status and your total years of service credit.
  • What you’ve earned as of December 31, 2016 will show how much you have earned as of the end of the year. In other words, if you were to terminate employment in the near future, this is approximately what your benefit would be at normal retirement age. Keep in mind, this amount is based on your service to December 31, 2016 and as you continue to work, you continue to earn months of service credit that will increase your future benefit.
  • What you could earn if you keep working will show you a projection of your LAGERS benefit if you work until your retirement age. This section shows you how remaining with your current employer under LAGERS will assist you in becoming financially independent in retirement.
  • Beneficiaries this is your current beneficiary(s) listed with LAGERS. If you need to update your beneficiaries, you can do so online through the myLAGERS portal or submit a Change of Beneficiary Form from our website.
  • Your LAGERS Account Balance will show your employee contribution balance including any contributions for purchasing service credit. If you do not make any employee contributions or have not made contributions at any time in your career, the balance will not be listed. This account balance does not have an effect on your benefit amount as your benefit is determined using a formula.
  • Your last 10 years of Salary Reported to LAGERS will show the last 10 years of wages reported to LAGERS. If you do not have 10 years of service under LAGERS, it will show what wages have been reported for the service you have earned.

 

Member Annual Statement vs. Benefit Estimate. The annual statement is an excellent way to understand what your LAGERS benefit will pay you in the future and a great tool to help you plan your retirement savings. However, another tool at your disposal when you near retirement is a benefit estimate. The benefit estimate has some similar functions to your annual statement, but it is a benefit projection based on an estimated retirement date you provide. Additionally, benefit estimates illustrate each of your available payment options, including the partial lump sum and what your potential beneficiary would receive with each option. You can generate and save benefit estimates on the myLAGERS portal 24/7. If you’re not signed up for a myLAGERS account, simply click this link and click “Enroll Now.” However, if you do not wish to have a myLAGERS account, you can have an estimate mailed to you by calling the LAGERS office at 1-800-447-4334.

So, the next time you look at your retirement savings plan, be sure to look at your annual statement to help you know what to plan on from your LAGERS retirement benefit. As always, if you have any questions regarding your statement or any other aspect of your LAGERS benefit, feel free to contact the LAGERS office!

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Jeff Pabst, CRC Senior Communications Specialist

 

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